Volkswagen Emissions Scandal and Leasing

Owners and potential buyers of VW and some Audi diesel vehicles are probably now well aware of the scandal rocking the automotive industry. It affects hundreds of thousands of Volkswagen vehicles worldwide. It also impacts customers who are currently leasing VW diesel vehicles.

Volkswagen has admitted inserting software into the vehicles’ emission control systems that falsifies emission test results while allowing the engines, when not being tested, to emit environmental pollutants several times legal limits.

This has come as a huge disappointment to people who purchased these vehicles specifically for their supposed “clean engine” and high mileage claims. Many owners are abandoning use of their vehicles and are confused as to what comes next. Will VW be able to fix the cars, replace them, buy them back, or what? At the time of this writing, it is not clear what VW’s response will be.

The bad news is that, currently, the resale and trade value of an affected VW vehicle has dropped like a rock. Dissatisfied owners can’t simply sell or trade to get away from the problem. Nobody wants them anymore. The potential financial loss is huge, assuming a buyer can even be found.

There is a possible “hidden” problem caused by this situation. If the owner of one of these vehicles is unfortunate enough to have their vehicle “totaled” in an accident, their insurance company will only pay current market value — almost nothing — not the amount that might still be remaining on a loan. The owner would then be responsible for paying off the remainder of the loan, in full, unless they had bought GAP insurance.

For those who have leased their VW diesels, things are a bit more rosy.

Since lease payments are based on an estimated lease-end residual (resale) value that is written into lease contracts, lease customers are protected from the financial impact of the scandal.

People now leasing are enjoying a good deals because VW diesels have had relatively high residual values in the past, which has made them good lease vehicles. Not so now.

Current lessees of the affected vehicles may be disappointed in the fact that their vehicles are not as “clean” as they thought, and may not be pleased to continue driving them (pending some yet unannounced VW solution), they will not suffer any financial impact, assuming they continue their lease until its normal end. They will simply return the car at lease-end, and let VW suffer the big financial loss.

If the leased VW vehicle is totaled in an accident, the GAP insurance or no-responsibility waiver that is included free in most lease contracts would protect the lessee from further financial responsibility after insurance has paid the current market value — practically nothing — for the vehicle.

It goes without saying that leasing one of these flawed vehicles at this time would not be a good idea, even if one could be found at a dealer. Actually, VW dealers have stopped selling and leasing the vehicles.

Can I cancel my VW lease? Will VW buy back my lease?

People who are now leasing Volkswagens should avoid the temptation to end their lease early in an attempt to escape this problem.

An early termination allows the lease finance company to recalculate the early payoff amount based on the current market value of the vehicle, not the contract residual value. As we’ve already mentioned, the current market value of these vehicles is near zero, which means the early payoff amount, as calculated by the lease company, will be a prohibitively large amount, practically the entire original value of the vehicle. Therefore, lessees are best advised to continue their lease until its normal end date and then return the car without further financial impact.

Although it’s possible that part of Volkswagen’s “solution” to this problem may be some kind of relief for leasing customers, it would be best not to expect too much at this point. The best outcome for leasing customers would be for VW to develop a fix that could be applied with a simple visit to a local dealer. Even then, the resale value of VW diesels, and possibly non-diesels, will be tainted for years to come, although current leasing customers need not worry.

VW is now offering a small gift of apology to all owners and lessees of VW diesel vehicles. Honestly, it’s not much and it’s not clear what the company thinks that it accomplishes. Furthermore, the deal is a bit complicated.

The deal is a $500 prepaid Visa debit card that can be used for anything you want, as well as a $500 dealer credit card that can be used at a VW dealership for part of a down payment on another car or for anything in the parts department, such as a nice air freshener or a VW key fob, for example. Finally, you get 3 years of 24-hour roadside assistance.

However, to get all this, you apply online at https://www.vwdieselinfo.com/goodwill_package/ and wait for a “Goodwill Package” to be sent to you. You then take the package to a nearby Volkswagen dealer to activate your cards and benefits — which presumably gives the dealership an opportunity to talk you into a new car.

If you are thinking about buying or leasing a VW

Of course, you won’t be able to lease or buy a diesel model of a Volkswagen vehicle, but you can certainly buy or lease a gas model, which are excellent vehicles and not affected by the scandal.

Furthermore, the company is now offering some of the best purchase and lease incentives that it has ever offered in response to the negative press caused by the cheating scandal. For more details see our article, Great Volkswagen Deals – Distress Sale. If you are primarily interested in leasing, our article, Should You Lease a Volkswagen might be of more interest.